Compiled by Moreblessings Chidaushe
22nd April, 2020
On the 22nd April 2020, President Cyril Ramaphosa announced a R500 billion COVID-19 socio-economic relief package for South Africa – cast in a six months’ timeframe. The package is equivalent to 10% of the country’s Gross Domestic Product (GDP) – this is no small package by any measure. The comprehensive package covers a range of areas including businesses, employees, individuals, tax relief, unemployment benefits, small businesses including spaza shops, the taxi industry, health sector, municipalities, water and sanitation and social grants including higher child support amongst other relief measures. Credit should be given to President Ramaphosa for his leadership in handling of the country’s response to the pandemic. Amongst other initiatives, South Africa was the first country in the SADC region to lockdown the country and roll-out mass testing. While some sectors may consider the package inadequate, under the circumstances, the President has shown political will and taken decisive action to ensure that the country responds to the pandemic.His Excellency and his team have been visible and engaging.
The historic package is a welcome relief and while it will not solve all the country’s COVID-19 concerns, it will certainly cover some ground in addressing some of the key challenges that have been witnessed on the ground in recent weeks such as growing social unrest in the quest for food and basic supplies, lack of compliance to the lockdown measures, closing down of businesses and loss of jobs amongst others. With such a comprehensive package in place, the government hopes to heighten focus in fighting the pandemic to ensure that is it arrested and that no further damage is made to the economy and society at large. The costs of not addressing the pandemic comprehensively will be very high and will last for several generations.
President Ramaphosa announced that the funds will come from a variety of both domestic and international sources including World Bank, International Monetary Fund (IMF), BRICS Bank and African Development Bank (AfDB). According to Bloomberg, “such a loan would be payable over 3.25 to five years and at an interest rate of just above 1%” Ihttps://www.bloomberg.com/news/articles/2020-04-21/south-africa-eligible-to-4-2-billion-with-few-strings-imf-says.
From the look of it, a combination of soft and interest free loans are on the table for this package – these are clearly better terms than if the country had obtained these loans from commercial lenders. Yet loans are loans and they will have to be paid back at some point. According to Bloomberg, The IMF insists that there will be no harsh conditionalities but instead light conditionalities. it is our hope that we have the same understanding of light conditionalities as the IMF and on how these will affect the ordinary man and woman in the street a few years from now.
For those of us who are non-millennials, memories of the International Financial Institutions (IFIs) 1980s Economic Structural Adjustment Programmes (ESAPs) are still fresh in our minds and lives, the impacts are still visible through broken down health and education systems, mass unemployment, poor infrastructure and many other challenges– many of the developing world’s economies are yet to recover from the SAPs and history has on records the impacts of the ESAPs. A lot of our economies will be too fragile to deal with new and additional conditionalities.
While the government’s choices for resource mobilisation to address COVID-19 are very limited at this stage and it makes sense to urgently look eslewhere, extreme caution must be taken in the borrowing processes and terms to ensure that the country does not end up in a debt trap leading to a vicious cycle of debt. Considering that South Africa was already in recession and had just been classified to junk status by ratings agency Moodys, careful and critical steps need to be taken to ensure that as the Covid-19 pandemic is being addressed, balanced attention is being given to strengthening the post COVID-19 economy for it to be able to pay back the loans without further damage to the country. Coming from a debt movement background myself, fears are real that yet another and an even bigger debt crisis is here. One which we may not be well equipped to deal with unless urgent radical action is taken.
Debt Relief calls
There have recently been loud calls from various sectors such as the debt movements for immediate debt relief and debt cancellation for the poorest countries to free resources to deal with COVID-19. These calls are not unfounded and need to be made louder. In a recent statement Jubilee USA called on World Bank, IMF and G20 to halt debt repayments citing the need for more resources for poor countries to address the pandemic. “Confronting the global health and economic impacts of the coronavirus will only be possible if we implement a number of solutions. We need to see the IMF and World Bank also use debt payment moratoriums,” said LeCompte. “The IMF will need to provide financing for both poor and more developed countries. Various creditors will need to provide debt relief for developing and developed countries. We need to improve our debt restructuring processes very quickly.”
The call is timely and well justified, a further debt crisis will only take the world a million steps backwards at a time when resources should be harnessed towards the achievement of the Sustainable Development Goals. Given their current capacities and performances, it will be difficult if not impossible for many African economies to strike a good balance between addressing the urgent pandemic and maintain decent economic growth for the long-term. Debt relief and additional grants for COVID -19 are all the critical now.
For South Africa and the developing countries, difficult as it maybe, it is the time to make things right, use the opportunity and the current crisis to innovate and find new and stronger ways to strengthen their economies and society to contribute to a better future – one that can contribute to regeneration – and a better future for all, to prepare the countries for sustainable development and ensure that we are well prepared for future pandemics. Fiscal discipline including good Public Financial Management, efficiency of the public sector, transparency and accountability to ensure that the resources are not wasted is paramount. Strong measures will have to be taken to arrest the scourge of corruption which is already eating into the little COVID-19 resources the country has. In South Africa, food distribution has both been politicised and used for personal gain by those with proximity to power. The role of civil society and the broad citizenry in holding governments accountable for prudent governance of resources, transparent and accountable public financial management is ever more important.
The South African government needs to engage society on the long-term implications of this historic relief package – the public needs to understand that this is not free money – it will have to be repaid in the post COVID era and all of us will have to tighten their belts for the socio-economic reforms that will make it possible for the country to repay the loans and grow its economy. As twitter would have it in this day of advanced digitalisation, as President Ramaphosa was delivering his address to the nation, a heated discussion was going on on the twitter streets with one south African remarking “guys all I hear from the President is billions and millions, I don’t know what is happening” several asked “where will the money be coming from” and one even asked “guys what is IMF?”. When the impact of these loans start biting in a few years, few will remember that these were loans to be paid back, they will expect live to go on as normal which maybe near impossible. It is important for the people to really understand what is happening, The South African government needs to go on a drive to educate the people and get their buy in on this and journey with them. Top-down decision making may backfire in future.
The future will be painful on all, the road ahead will be long and bumpy but if we focus on the best interest of our countries and our people, we can all play a role in ensuring that we will recover and emerge stronger on the other side.